Chimera & Annaly, Venturing Further With Vulture Capital (CIM, NLY)

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Chimera Investment Corporation (NYSE: CIM) has raised cash via a secondary offering.  The mortgage and fixed income investment vehicle, which we have referred to as the first public vulture fund set up to capitalize off of the current mortgage malaise, priced a secondary offering of 110,000,000 shares of common stock at a price of $2.25 per share. 

The gross proceeds before fees will generate roughly $247.5 million andthe estimated net proceeds to Chimera from this offering are expectedto be approximately $237.9 million. 

Chimera’s external manager parent company Annaly Capital Management,Inc. (NYSE: NLY) will also acquire 11,681,415 shares of Chimera’scommon stock in a private offering at the same price per share as theprice per share of the public offering after the offering.

Merrill Lynch was the lead book-running manager, and Credit Suisse andDeutsche Bank were book-running managers.  Citi, J.P.Morgan, UBS, JMPSecurities, and Keefe Bruyette & Woods were listed as co-managers.The company granted the underwriters a 30-day over-allotment option topurchase up to an additional 16,500,000 shares of common stock.

Chimera and the company plans touse the funds to finance the acquisition of non-Agency RMBS, AgencyRMBS, prime and Alt-A mortgage loans, CMBS, CDOs and other consumer ornon-consumer ABS.  In short, it is going into the market to buy moreinvestments (probably) at lower prices.

This stock has not done well after an incredible debut.  As it was oneof the first or the first of the vulture funds, it has been punishedby the market for the timing of just being too soon.  If the companycan keep buying in at lower and lower distressed prices. 

Some people do not like vultures.  But we do.

Jon C. Ogg
October 24, 2008